Corporate Finance & Private Equity Lab

LBO & Private Equity Calculator

Model Leveraged Buyouts (LBO), sources & uses of funds, 5-year debt paydown schedules, sponsor IRR, MOIC, and exit returns attribution.

LBO Engine 5-Year Debt Schedule Private Equity Theory FAQ

Buyout Archetypes

Load benchmark private equity transaction profiles.

Step 1: Set Entry Valuation, Debt Structure & Pro-Forma Growth

Transaction & Financing Inputs

Target trailing 12-month EBITDA.
Acquisition purchase enterprise multiple.
M&A advisory, legal & financing fees.

Debt Financing Structure

Term Loan A/B (Senior Bank Debt).
Annual floating/fixed cash interest.
Mezzanine / High-Yield Notes.
Subordinated debt annual interest.

5-Year Operations & Exit Assumptions

Annual EBITDA margin expansion.
Year 5 EV / EBITDA multiple.
Sponsor 5-Yr IRR
24.2%
5-Year Sponsor IRR (Top Quartile)
Sponsor MOIC
2.96x
Initial Equity: $118.13M (51.2% of Uses)
Exit Equity Proceeds
$349.50M
Exit EV: $385.20M | Exit EBITDA: $40.55M
Ending Net Debt
$35.70M
$76.80M total debt principal repaid

Value Creation Attribution Triad

Quantifies the three distinct sources of equity value creation across the 5-year holding period.

1. Debt Deleveraging
+$76.80M
Cash flow used to pay down initial debt principal
2. EBITDA Operational Growth
+$139.95M
Revenue expansion & EBITDA margin expansion
3. Multiple Expansion
+$20.28M
Exit multiple (9.5x) vs. Entry multiple (9.0x)

5-Year Pro-Forma Income Statement & Debt Paydown Schedule

Period Revenue EBITDA Interest Expense Net Income Free Cash Flow Ending Debt Balance

Private Equity & Corporate Finance

Principles of Leveraged Buyouts (LBO)

Key financial mechanics governing sponsor returns:

  • Financial Leverage Effect: Using 50% to 70% debt magnifies equity returns (IRR) as debt is paid down using target company cash flow.
  • Cash Flow Sweep Priority: Operating cash flow is prioritized for Senior Debt amortization, shifting Enterprise Value from debt holders to equity owners.
  • The MOIC / IRR Relationship: A 2.5x MOIC in 5 years equals ~20% IRR, the standard target hurdle rate for top-tier private equity funds.
  • Downside Protection: High initial leverage elevates default risk during economic downturns; interest coverage ratios ($EBITDA / ext{Interest}$) must remain above 2.5x.

Assess cost of capital in the WACC & Cost of Capital Lab.

Mathematical Formulation

LBO valuation equations

Entry_EV = Entry_EBITDA × Entry_Multiple

Sponsor_Equity = Entry_EV + Fees - Total_Debt

FCF = Net_Income + D&A - CapEx - ΔNWC

Exit_Equity = ( Year_5_EBITDA × Exit_Multiple ) - Ending_Debt

MOIC = Exit_Equity ÷ Sponsor_Equity

5_Year_IRR = ( MOIC )^( 1 ÷ 5 ) - 1

Model M&A accretion in the M&A Accretion / Dilution Lab.

FAQ

LBO & private equity questions

What is a Leveraged Buyout (LBO)?

A Leveraged Buyout (LBO) is the acquisition of a target company using a significant portion of borrowed debt (senior bank loans and subordinated bonds) combined with an equity investment from a private equity sponsor, where the target's operating cash flows service and pay down the debt.

How do Private Equity sponsors calculate MOIC and IRR?

MOIC (Multiple on Invested Capital) equals Total Exit Equity Proceeds divided by Initial Sponsor Equity Check. 5-Year IRR (Internal Rate of Return) equals (MOIC)^(1/5) - 1.

What are the three core drivers of LBO value creation?

The three core drivers are: 1) Debt Deleveraging (using cash flow to pay down debt principal), 2) Operational EBITDA Growth (revenue expansion and margin improvement), and 3) Multiple Expansion (selling at a higher EV/EBITDA multiple than entry).

What is a 100% Free Cash Flow debt sweep?

A debt sweep is a covenant mechanism where all remaining pro-forma free cash flow after CapEx, working capital, and taxes is automatically used to pay down senior debt principal ahead of schedule, accelerating equity value creation.

Can I export the LBO model and debt schedule to CSV?

Yes. You can export complete entry valuation metrics, sources and uses, 5-year debt schedules, exit returns, and value attribution breakdowns as a UTF-8 CSV spreadsheet with formula defense.

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